02 What you need to know
How 1099 mortgage programs work
A 1099 is the form a client sends you, and the IRS, showing what they paid you as an independent contractor. You don’t have an employer withholding taxes, so you deduct your own business expenses.
Why conventional loans often undercount 1099 income
Conventional, FHA, and most jumbo lenders treat 1099 income as self-employment income. They qualify you on your Schedule C net profit, which is what’s left after expenses, averaged over usually two years. If you write off a lot, that number can be small.
How a 1099-only program counts income
Some Non-QM (non-qualified mortgage) lenders offer 1099 mortgage programs that start from the 1099 totals instead. Common features, which vary by lender:
- One or two years of 1099s, often with a two-year history in the same line of work.
- An expense factor: a fixed percentage the lender subtracts for business costs, or in some programs a stated or CPA-supported expense ratio.
- Year-to-date verification: recent bank statements showing the payments, or a written verification from the company paying you.
- The usual borrower checks: credit, reserves, down payment, and whether income is stable or declining.
Not every lender offers this, and the rules aren’t standardized.
1099 programs vs. bank statement programs
A 1099 program relies on paperwork from your payers. A bank statement program analyzes what was deposited into your account. If nearly all your income is 1099-reported but your deposits are mixed with transfers and reimbursements, 1099s may be cleaner. If you have lots of income that isn’t on 1099s, bank statements may capture more.
03 Real-world example
Example: $250,000 in 1099s, $95,000 on the tax return
Say you’re a contractor who received $250,000 in 1099 payments last year. After deductions, your Schedule C net profit was $95,000. Here’s how different approaches might count that income.
| Method | Annual income | Monthly income |
|---|---|---|
| Tax return (Schedule C net) | $95,000 | $7,916.67 |
| Hypothetical 1099 program, 10% expense factor | $225,000 | $18,750.00 |
| Hypothetical 1099 program, 25% expense factor | $187,500 | $15,625.00 |
| Hypothetical 1099 program, 50% expense factor | $125,000 | $10,416.67 |
Assumptions: hypothetical figures; the tax-return line assumes two identical years and no add-backs. Expense factors are set by each lender and program, so these rows show a range of possibilities, not a promise of any specific number.
The same $250,000 of work could be counted as anywhere from about $7,900 to $18,750 a month, depending on the method. That gap is why it pays to compare programs before you shop.
04 What most people overlook
What 1099 contractors overlook when applying for a mortgage
Declining income still matters. If this year’s 1099s are well below last year’s, many lenders will use the lower figure or ask why.
Switching fields can reset the clock. A new line of work, even at higher pay, may not count until you have some history in it.
Multiple payers mean more paperwork. Every 1099 you want counted needs to be documented, and year-to-date payments usually need to match your deposits.
The trade-off is cost. 1099 programs typically have higher rates and larger down payments than conventional loans. If your Schedule C income is close to enough, conventional may still be the better choice.
05 How I’d approach it
How I’d approach a 1099 mortgage
Two contractors earning the same amount can look completely different to a lender. I want to see how your income actually arrives before I pick a program.
I start by listing every 1099 for the last two years, plus what you’ve been paid this year.
- I calculate what your tax returns support for conventional, with any allowed add-backs.
- I run the same income through 1099 programs with different expense factors.
- I check whether your bank deposits tell a cleaner story than the 1099s do.
- Then I compare rate, down payment, and cash to close for each option side by side.
See how a freelance producer in Studio City qualified, or browse all self-employed mortgage options.